I am recommending we purchase protective puts on Target (TGT) and VanEck Vectors Semiconductor ETF (SMH) to hedge our LEAP positions against a market sell-off following this afternoon’s Federal Reserve meeting.
Note that these are defensive positions meant to offset a move lower in the underlying stocks. However, a sharp sell-off could cause the value of the puts to spike, allowing us to significantly lower our cost basis on the positions, as we did with Target once before.
I plan to reconstruct both trades soon with new LEAP call spreads, as they are deep underwater.
TGT Jan 2023 (1/20/23) 200 Call
Current Stock Price: $152.86
Cost Basis: $16.51
Action: Buy to open the TGT Jul Week Five (7/29) 150 Put for around $1.06, but adjust as needed to buy a put
New Cost Basis: $17.57
SMH Jan 2023 (1/20/23) 250 Call
Current Stock Price: $228.53
Cost Basis: $50.13
Action: Buy to open the SMH Jul Week Five (7/29) 225 Put for around $2.11, but adjust as needed to buy a put
New Cost Basis: $52.24